Tuesday, March 28, 2006

Health Care and Sin Taxes

Tennessee Governor Phil Bredeson announced to the General Assembly yesterday an aggressive state supported "Cover Tennessee" program for providing medical insurance coverage to uninsured persons in the state with incomes up to 250% of the poverty level. Children and pregnant women under that income level will also have opportunities to obtain coverage, as will persons with certain uninsurable conditions. Beneficiaries will be asked to pay premiums. Exactly what will be covered under the program remains unknown. Insurers will be asked to submit bids as to what they would cover for $150/month per enrollee.

At a minimum, it can be stated that this is an improvement over TennCare. For example, beneficiaries are required to make some sort of payment for their coverage based on income, thus creating some personal responsibility for coverage. Furthermore, there are features of this program that would be beneficial if they could be applied in the private sector. Numerous government mandates for coverages to be included in group health insurance take away private insurers' ability to tailor coverages, thus increasing the cost of insurance for everyone. The governor's proposal would be exempt from those mandates. Relieve private insurers of those requirements, and they could provide more affordable coverage without the state's intervention. The governor is also correct when he says that medical insurance coverage should ultimately follow the individual and not be a function of employment.

That is not to say that there are no problems. There is not really anything here that will function to control costs or discourage antiselection (the tendency of sick people to buy insurance and of young, healthy people to decline to do so).

It can be argued that the problem of the uninsured is an exaggerated one. According to the state, 580,000 Tennesseans are uninsured. However, that may include a number of people who have no insurance for a brief period of time while between jobs. We also know from the state's data that over 240,000 of those uninsureds have incomes greater than $30,000. Thus, while 8 in 10 uninsureds say they cannot afford health insurance, one suspects that a large number of those can't afford it because they would rather have a newer car or better place to live.

Which begs the question: should taxpayers be required to subsidize those decisions? Many people also lack healthcare coverage through their employers because they choose to work for themselves or would rather work for a small company. There are good reasons for making those decisions, but should taxpayers subsidize them? The governor emphasized that no income tax would be required to pay for the program, but said that an increase in cigarette taxes may be required. While many who oppose the income tax could favor an increase in Tennessee's low cigarette taxes, the following might be considered:

Because tobacco usage is higher among the poor, taxes on them come disproportionately from the lower classes. As 42% of the uninsureds in Tennessee make over $30,000 per year, and as the program also helps small businesses that don't offer health insurance to retain employees, taxing cigarettes to pay for this health coverage amounts to a transfer of wealth from the poor to the middle class.

In fact, if this is enacted, two of the most costly functions of the state -- health care and higher education -- will be funded through revenue streams derived disproportionately from the lower class -- cigarette taxes and the lottery, respectively.

The governor should be credited for making a creative proposal, and this bit of sniping is not intended to demean that. However, there is much left to consider. Let the debates begin.